China freezes game licences

The halt follows a restructuring of power among departments


HONG KONG • China’s regulators have frozen approval of game licences amid a government shake-up, according to people familiar with the matter, throwing the world’s biggest gaming market into disarray.

The halt follows a restructuring of power among departments, said the people, who asked not to be named because they don’t have approval to discuss the issue publicly.

Regulators have also been concerned about violence and gambling in some games, according to one person. Online, mobile and console games have all been affected.

The whole sector has been rattled as gaming companies from online giant Tencent Holdings Ltd to small developers await approvals.

Tencent, the country’s gaming and social media goliath, has shed more than US$150 billion (RM615 billion) in market value since its January peak, while smaller players complain they are struggling to survive without new titles.

China has one of the world’s most str ingent approval processes for video games, an extension of Beijing’s obsession with maintaining control over online content, so it can root out dissent and other ideas it considers undesirable, from sex to graphic violence.

But its massive smartphone and web population also makes it the world’s largest gaming market with an estimated US$37.9 billion in revenue, according to research by Newzoo.

“For new game approvals, there will continue to be a drag,” said Alicia Yap, Citigroup Global Markets’ head of pan-Asia Internet research. “If they previously didn’t get an approval, it seems that there will continue to be a hold on that.”

Jane Yip, a spokeswoman for Tencent, declined to comment on game approvals. The ministries didn’t immediately respond to faxed requests for comment.

While certain companies have disclosed delays in getting approval for their games, the industrywide freeze has not been made public before. Two departments oversee the process.

The National Radio and Television Administration has not granted licences for about four months, while the Ministry of Culture and Tourism has made game registration procedures more stringent, the people said. Both agencies have gone through personnel changes and restructurings of responsibilities following a shake-up earlier this year as President Xi Jinping consolidated power.

With the leadership transition, bureaucrats have been reluctant to take risks or initiate new steps that could become controversial.

The gaming industry regularly draws scrutiny for addiction, violence and even violating core socialist values.

Dozens of companies may be affected. Tencent and Netease Inc are among the biggest game distributors in China, and they licence titles from some of the world’s biggest developers, including Activision Blizzard Inc and Electronic Arts Inc in the US, and Capcom Co Ltd in Japan. Nexon Co Ltd gets 45% of its revenue from Tencent, according to data compiled by Bloomberg.

Japanese game makers fell sharply af ter Bloomberg reported the freeze. Nexon plunged 5.9%, while Capcom dropped 2.7%. Konami Holdings Corp slid 4.2% to its lowest close in more than a year.

Tencent shares fell as much as 3.9% to their lowest in almost a year.

“China’s whole onl ine gaming industry is having some issues — not only because of regulation, but also because Chinese gamers are becoming more mature and selective,” Shawn Yang, ED for Blue Lotus Capital Advisors, said on Bloomberg Television.

Even if the regulators resume approvals immediately, the typical process takes about two to three months, signalling potential weakness in the third quarter (3Q) for companies like Tencent.

Tencent still hasn’t received approval to introduce desktop versions for two of the world’s hottest games — Player-Unknown’s Battlegrounds (PUBG) and Fortnite. It also doesn’t have the green light to make money from the mobile version of PUBG, despite garnering a combined 169.7 million-plus installations as of August, according to data compiled by Aurora Mobile Ltd.

This week, it got a slap on the wrist and pulled down Monster Hunter: World from its personal computer distribution service due to a licensing issue.

All this has been undercutting Tencent’s chief source of income. Deutsche Bank AG analysts led by Han Joon Kim now expect a 6% drop in mobile gaming revenue in the 2Q from the 1Q, instead of their original forecast for a rise of the same magnitude.

Still, Yang of Blue Lotus voiced confidence the company would eventually begin getting government approvals again.

“We don’t think that the regulation will impact the sector forever,” he said. “We think that Tencent is still able to break this siege and continue to publish new and popular games.”